Apple: From Beleaguered to Successful to Sheriff

“Mr. Books, my grouping of shots was tighter than yours. How is it you’ve killed so many men?” John Bernard Books: “First thing is, that target wasn’t shooting back at you. Second, most men at that last second will flinch; I won’t.”

— John Bernard Books, played by John Wayne, The Shootist (1976)

Apple has gone through metamorphoses before, and now it’s going through another. The company that lots of people love to hate has emerged from its recent transformation as not only enormously wealthy but inclined to call its own shots. How that will play out remains to be seen, but the fact remains, there’s a new Sheriff in town and Adobe’s Flash is doomed.

To see why I believe that, a look at this instructive sand chart that shows Apple’s sources of revenue over the last three years is helpful.

Credit: Silicon Alley Insider. April 21, 2010

This chart, in spectacular visual fashion, shows that Apple’s revenue derived from the Mac, while growing, has only grown from about US$2.1B per quarter in 2003 to about $4B in March 2010. That kind of growth would have been good for Apple, but certainly would not have fueled Apple’s coffers and driven it to become one of the most financially successful tech companies on the planet. The other legs of the triad, notably the iPhone, have made a major contribution.

Risk and Growth

Back in 2001, Tim Cook was fond of talking about Apple’s dilemma. The company seemed perpetually stuck in a roughly US$6B annual revenue model. Many had been calling the company beleaguered. It didn’t start to break out of that range until 2005 when iPod sales really gathered some steam. All Apple could do at the time was to steadily push on, building for the future with each generation of Mac OS X.

Back then, Apple would have never dreamed of throwing its weight around in a threatening way. Sure, Apple did some characteristic things like dumping SCSI and adopting USB, canning the 3.5-inch floppy, and focusing on industrial design (jellybean iMacs) when Mr. Jobs returned — when all corporate purchasing departments wanted were beige boxes. But, in hindsight, these were low risk decisions. They cemented Apple’s reputation and created glamour in the only market segment where Apple could appeal to people with sole purchase authority — the home user.

Instead of grinding out its own standards and strangling itself one more time, Apple, thanks to the heritage of its new UNIX-based OS at the time*, the company seized on the idea of open standards that would ensure a profitable and compatible future for its Mac OS X.

First the Power, Then the Threat

A lot has also been written about Mr. Jobs desire for control, but not a lot has been written about Apple’s emerging power and how it’s using it. Although a few fret, even me.

Our new Apple emerged from a company that pretty much had to go along to get along to a company that is no longer at the mercy of its competitors. For years, analysts have been asking Peter Oppenheimer at Apple’s earnings reports what the company intends to do with its enormous cash and investment holdings. Each time, Mr. Oppenheimer reiterates that the goal is “preservation of capital” which now amounts to almost US$42B. Those of us who listen in to these sessions probably don’t see the wry smile, and as a result that geeky phrase leaves us somewhat mystified until we remember that the phrase is also a euphemism for “a loaded gun.”

For example, Apple could, if it really wanted to, engage in a hostile takeover of Adobe. Adobe’s market cap is easily within reach of Apple, a mere fraction of Apple’s $42B, and while some may suggest that there would be antitrust issues, that certainly hasn’t stopped Comcast from proceeding to buy NBC Universal, a colossal conflict of consumer interest if there ever was one. Northrop Grumman did it to TRW; Apple could do it to Adobe if sufficiently motivated.

Apple is still very much in a wild, wild West in terms of computer technology. It’s frontier days all over again with mobile computing. There are those who are like the 19th century cowboy, sleeping on the range, and beholden to no man. They ask, “Hell, why can’t I come into town after a hard cattle drive, shoot off my gun in the air — no one hurt! — and have a few drinks? I’ll also play me some poker in the saloon, but I reserve the right to shoot a man dead if he cheats on me.”

But then there’s the Woman’s Christian Temperance Union, the mayor, and the mining company executive, all who have a vested interest in having a peaceful, productive community. That means that some citizens give up their infinite rights for the good of the community as a whole. Otherwise, there’s just chaos. Freedom, but chaos.

That’s what some technical people want today with their mobile devices: infinite, perfect technical freedom. The problem is, that without some kind of law, there is nothing good that can come from the works of men. The mobile community turns in to something like Bedford Falls in It’s a Wonderful Life in the timeline that went bad. Or akin to our own recent U.S. financial meltdown in which bankers without adult supervision treated the money of Americans like their own personal game of financial adventure for fun and profit.

Now the Sheriff has come to town. Mr. Jobs has argued that not only is Flash, a byproduct of the 1980s PC WIMP interface, not appropriate for the modern mobile products, but that what’s good for Apple’s future is good for Apple’s customers as well. It’s a bold assertion that alarms some people, especially those with the cowboy mentality. However, if you dig, you’ll find strong technical arguments that back up Mr. Jobs’ assertion. That’s why Mr. Jobs, as Sheriff, recently said, “Folks who want porn can buy an Android phone.”

More to the point, however, is Apple’s use of its power to achieve technical goals. We are firmly accustomed to Apple’s vision, innovation and industrial design as drivers of our interest and loyalty as customers. Now, however, Apple’s wealth means that it no longer needs to live in fear of how some company might retaliate. That’s real power. For now, justified power.

The Verdict: Responsibility

Say what you will, and I know you will, there are restraints on this power. As in my favorite Western series by Robert B. Parker, Virgil Cole and Everett Hitch may be the law in town, they may get a paycheck from the owner of the local mine, but even they can only gun down so many men before they’ve overstayed their welcome. The thing to remember is that no man’s power is infinite, as Mr. Jobs’ new liver has so aptly reminded him. This new power still comes inherent with responsibilities. The cowboys may be offended by the power of the Sheriff, even hate him for his authority. But remember, power in this day and age is still held implicitly to the cardinal rule: ” Authority is granted solely for the good of those tendered to, not the one granted the authority.”

That means that Mr. Jobs still has to answer to his board of directors, the stock holders and the community as a whole for what he does. While the mavericks out there who want total freedom might bitch and moan, Mr. Jobs has done a good job of creating a business opportunity for developers, artists, writers and even newspapers and magazines. All the while, keeping Apple customers safe and secure. Want a gunfight? Get outta town.

The ultimate test probably won’t be whether the new Apple Law and Power law will suffocate the company, but whether Power for the Sake of Power corrupts Apple from within. That already happened in the mid 1990s, by mutual consent of greedy, visionless VPs, and Mr. Jobs cleaned house of the vandals. We’ll be watching closely to see if Mr. Jobs falls prey to the effect himself. But for now?

Adobe’s Flash is cooked, done for. This is a minor scuffle. In the grand scheme of things, no one in the Apple community will miss it by 2015. Apple’s competitors will still be playing catchup then because they have no strength of vision, no real goal other than to pad their own pockets and no genuine, self-tested belief in their authority. Meanwhile, the Sheriff will live on to fight the good battle.

As usual, excellent article Mr. M.! Be prepared though to be vilified by some quarters for what they will claim is a fulsome embrace of Steve Jobs. In truth, for mobile computing to become ubiquitous, the industry does needs to move out of Tombstone and into more civilized and orderly premises, not NYC which has its own kind of chaos, but more like my own hometown of Minneapolis. Glitch-free computing at a level never seen before is the order of the day if mobile computing is to take root.

Right now there are few things that are as much fun to watch as Apple navigating it’s way past the competition. [Well, fun if you don’t hold their competitors’ stock, exhilarating if you hold Apple’s.] What we are watching is a company that is on the early stages of what I expect to be a 20-25 year climb to domination. If they play their strategies perfectly and they get just the right breaks, Apple will do in mobile computing what IBM did in mainframes and Microsoft in desktops. And mobile computing will be a much bigger market than mainframes or desktops.

The competition is not giving up without a fight but none of them have the expertise in both software AND hardware that Apple possesses. And glitch-free computing requires both. Correction: glitch-free computing not only requires both, it requires that a company’s specialists in each of the two competencies be able to work together rather than at cross purposes. Look at Apple’s competition, they’re all either software specialists or hardware specialists. Plus you can easily argue that Apple outclasses them all in software excellence AND in hardware excellence.

So what’s the next big thing in Apple’s mobile computing blueprint for conquest? I say, they’ve already laid down the direction for the devices with which they will do battle, now it’s on to enhancing the infrastructure in which these devices operate. And that points to the server farm in North Carolina of which nobody really knows what it’s for. Apple has been picking up the odd Placebase here and Siri there. Seems to me, that spells s-e-a-r-c-h. In a way that is totally retooled for mobile computing.

There are a few that will bemoan the disappearance of the old, run anything you can, absolute freedom of “the good old days of computing”. They are like the remaining Mountain Men that couldn’t stand fences, and roads, and lawmen of the 1880s and retreated further and further into the mountains. Eventually they all faded away. Similarly, computing is moving into a new paradigm and you either go with it or be left behind. As the song says “The good old days weren’t always good and tomorrow ain’t as bad as it seems”.

Apple, for its part, seems to have realized that no matter who is right or wrong, having its brand associated with aggressive police action is probably not a great idea. So last week the company scrambled to draw attention away from the Gizmodo story by having Jobs publish an essay on the Apple Web site explaining Apple’s reasons for shunning Adobe’s Flash software. It worked, sort of. The tech blogs all ran with the news that Steve Jobs had come down from the mountain and published an essay. But the Gizmodo mess is not going away. Will it hurt Apple’s business? Not immediately. If anything, the buzz could boost sales when the new phone ships, probably in June. Long term, however, Apple’s brand could suffer. “I think there’s going to be a backlash. It’s all just dark and creepy,” says Rob Frankel, a brand consultant in Los Angeles. Call it the price of success.

Jim Fournier4:30 PM EDT, May. 3rd, 2010Guest

Rob Frankel, eh? Well, when you Google him you get a great list of articles extolling the virtues of his company and book. Just one thing - the articles are from www.robfrankel.com, robfrankel.blogspot.com, www.revengeofbrandx.com and www.revengeofbrandx.com.

I’ll say this for the guy: he sure knows how to manipulate Google rankings.

Bosco: I disagree with Daniel Lyons on just about everything. He claims that Apple’s Fortress will some day collapse as a result of its control, but offers no explanation or reasoning. Rather, it seems like an eternal hope of his that Apple will be as incompetent as Microsoft has been.

That means that Mr. Jobs still has to answer to his board of directors, the stock holders and ...

IMO it also means the stock holders have to ask the right questions at the annual stock holders’ meeting. Generally, the opportunity seems to slip by as the questions focus on the future, not the decisions and actions of the past.

Remember, the Internet is huge. It has a lot of people expressing their opinions, some very vocally. But ponder this: It’s always possible to make a buck collecting the tirades of a few and make it look like a surge. Call it data mining.

It’s not as profitable to look at the larger picture and avoid the sensationalism of one-offs. That would require a polling of thousands - which is far too much work for a blogger. So we have to depend on the journalist’s experience to weigh Apple vs the one-offs. That’s what I always try to do.